Global investment bank RBC Capital Markets is expecting Aviva to slash costs now that the insurance giant has a digital focus and a management team keen on downsizing.
In an analyst note, RBC said Aviva has always struggled to reduce expenses, but the management has now shown that it is “serious” about cutting costs.
“We see a significant cost-cutting opportunity at Aviva due to a management team which we see as more focused than peers towards the shareholder,” RBC said.
The bank noted that the insurer’s 2016 target expense ratio reduction of 50% was already achieved in 2015, when staff costs and employee numbers fell by 2%.
“We expect continued focus in this area in 2017,” the lender said.
Aviva’s focus on digital also boosts its opportunity to cut costs, RBC added. The UK insurer is investing in its digital franchise, which is expected to decrease costs by 30%.
“The group consists of multiple discrete IT platforms and it has been simply too expensive to migrate these on to a single system,” RBC said.
“We believe the advancement of IT and the new digital focus which management has brought means this is about to change.”
According to RBC, the £350 million restructuring costs at Friends Life, a business acquired by Aviva in 2014, will also drop next year while the £225 million savings in operating costs will be realised.
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